Even at 1 Percent, the US Remittance Tax Hits Poor Countries Hard

Estimating the impact on remittances

We have updated our previous estimates to show the potential impact of a 1 percent remittance tax on countries which send migrants to the US. While previous versions of the tax (and this blog) only applied to non-US citizens, the new proposed tax applies to all remittance senders (discussed below). In this blog, we only assess the impact of remittances sent by foreign-born residents. We used the World Bank’s bilateral 2021 remittance estimates, and updated them to reflect a 14.1 percent increase in global remittances between 2021 and 2024.

The proposed tax would be likely to reduce remittances sent through formal channels (such as banks and money transfer operators like Western Union) in two ways: (1) by reducing the amount sent, as a portion is diverted towards the tax; and (2) by discouraging remittances altogether.

Research by Ahmed et al. (2021) suggests that for every 1 percent increase in the cost of sending remittances, the amount sent falls by around 1.6 percent. Assuming linear and symmetric effects, that means that if the new tax raises costs by 1 percent, that could lead to a 1.6 percent drop in remittances.

(This reduction could also have knock on effects, which we have not included in our calculations due to lack of an elasticity estimate. With less money flowing through their channels, providers may be forced to raise fees, which itself will reduce sending further.)

The figures below show how the United States’s proposed tax could impact formal remittances, including both the tax itself and the price effects. Unsurprisingly, we find that Mexico stands to lose the most in absolute terms, over $1.5 billion per year. This is followed by a few large middle-income countries (India, China, Vietnam) and several Latin American countries (Guatemala, Dominican Republic, El Salvador).

Figure 1. Estimated reduction in annual remittances by destination (US$ million)

Central American countries are projected to suffer the greatest loss relative to their gross national income (GNI), with El Salvador—a close ally of the Trump administration—projected to lose the equivalent of 0.6 percent of GNI. Where the effects of the tax are significant relative to GNI, countries could experience lower household incomes, weaker consumer demand, and increased exchange rate pressures.

Figure 2. Estimated reduction in annual remittances by destination as % of GNI

Figure 3. Estimated reduction in US remittances by country (low- and middle-income)

For many countries, the remittance tax would be a further blow after the recent cuts to US aid. For example, Liberia is a country heavily reliant on both foreign aid and remittances: a quarter of the country’s foreign assistance came from the US, and remittances totalled more than three times Liberia’s bilateral foreign aid in 2023. The US aid cuts were already projected to remove the equivalent of 2 percent of GNI; even though it is small, the remittance tax will remove another 0.16 percent.

Using country-level estimates of USAID cuts by CGD colleagues, we show cumulative losses to the remittances tax and foreign aid cuts below. (Note: this only includes awards known to have been terminated.) For many low- and middle-income countries, the impact of the remittance tax far outweighs the impact of known US aid cuts conducted so far. We find that the remittances projected to be lost to the tax exceed 100 percent of US aid cut in 16 countries— and exceed 50 percent in a further five.

Figure 4. Estimated USAID ODA and US remittances lost to LMICs (US$ million)

Charting the changes to the tax

The proposed tax on remittances has been through several iterations. The first version of the Bill, approved in mid-May 2025, imposed a 5 percent tax on remittances. It was to affect non-US citizens, including green card holders, temporary workers, and undocumented immigrants. It was stated this would equate to more than 40 million people; we put the number around 23 million. It also applied to all remittance transfers, including those sent via banks and money transfer operators. Following substantial pressure from many corners, including the Mexican government, the tax was reduced to 3.5 percent a few weeks later.

Over the weekend, the tax underwent another set of changes. It was reduced to 1 percent but was also applied to all remittance senders, including US citizens; we calculate the tax could now apply to 48 million foreign-born residents. The reduction is a welcome shift. It significantly reduces the projected losses for many countries. Mexico’s estimated loss, for example, drops from $2.6 billion under the original 3.5 percent proposed tax to $1.5 billion. But expanding the tax to cover all remittance senders also makes a huge difference. If the 1 percent tax was applied only to non-citizens, Mexico’s loss would fall to $756 million.

So why was the tax reduced? As discussed by the Joint Committee on Taxation and the American Enterprise Institute (AEI), different versions of the tax were to bring in different amounts of money. The original tax in the House-passed bill was to yield $26 billion over ten years. The Senate narrowed the scope of the tax considerably, and early projections pegged the yield at $1 billion. The revised tax brings the expected yield to somewhere in the middle—nearly $10 billion. This may be due to the fact it now applies to all remittance senders, and due to the fact that a lower tax may be less of a deterrent.

If remittance senders do reduce the amount they send by 1.6 percent, our calculations suggest that the new 1 percent tax could bring in $4.5 billion, $1.3 billion more than with a 3.5 percent tax that applies only to non-citizens. If remittance sending is not affected, the new 1 percent tax could bring in $4.6 billion. It is unclear whether adding a tax on remittances sent by US citizens would bring that figure up to the $10 billion projected.

The tax also now exempts transfers sent from bank accounts and other financial institutions, as well as US-issued debit and credit cards, apparently due to internal lobbying from the banking industry. It is hard to find concrete figures on the percentage of remittances that are sent in this way, but existing evidence suggests this is small. (The Dialogue suggests that just ten money transfer operators manage approximately 80 percent of the flows from the US to Latin America and the Caribbean; and a Latinoamerica piece from last year put the transfers through formal remittance providers at 92 percent.) As a result, this change is unlikely to have a large effect on the impacts outlined above.

The vast number of provisions in the “Big, Beautiful Bill” has meant the remittance tax has received less attention than it deserves. As we outline, many countries will lose millions of dollars every year, in some cases even more than the losses they will suffer from aid cuts. While the reduction to 1 percent is a welcome shift, any tax unfairly penalises migrants, their families, and their communities at a time when they need the money most.

Many thanks to Claire Manley for her support on data analysis.